AstraZeneca PLC (AZN)

Equity
UK
Healthcare

RISK

RETURN

Key risk factors

Negligible price volatility

Strong & resilient to price shocks

Good trading liquidity

Key return factors

Strong growth

Favourable price performance

Greatly overvalued vs peers

Company profileAstraZeneca PLC, a biopharmaceutical company, focuses on the discovery, development, manufacturing, and commercialization of prescription medicines. Its marketed products include Calquence, Enhertu, Faslodex, Imfinzi, Iressa, Koselugo, Lumoxiti, Lynparza, Orpathys, Tagrisso, and Zoladex for oncology; Brilinta/Brilique, Bydureon/Byetta, BCise, Byetta, Crestor, Evrenzo, Farxiga/Forxiga, Komboglyze/Kombiglyze XR, Lokelma, Onglyza, Qtern, and Xigduo/Xigduo XR for cardiovascular, renal, and metabolism diseases; Bevespi Aerosphere, Breztri Aerosphere, Daliresp/Daxas, Duaklir Genuair, Fasenra, Pulmicort, Saphnelo, Symbicort, and Tudorza/Eklira/Bretaris for respiratory and immunology; and Andexxa/Ondexxya, Kanuma, Soliris, Strensiq, and Ultomiris for rare diseases. The company's marketed products also comprise Synagis for respiratory syncytial virus; Fluenz Tetra/FluMist Quadrivalent for Influenza; Seroquel IR/Seroquel XR for schizophrenia bipolar disease; Nexium, and Losec/Prilosec for gastroenterology; and Vaxzevria and Evusheld for covid-19. The company serves primary care and specialty care physicians through distributors and local representative offices in the United Kingdom, rest of Europe, the Americas, Asia, Africa, and Australasia. It has a collaboration agreement with Regeneron Pharmaceuticals, Inc. to research, develop, and commercialize small molecule medicines for obesity; Neurimmune AG to develop and commercialize NI006; Ionis Pharmaceuticals, Inc. to develop eplontersen, a liver-targeted antisense therapy in Phase III development for the treatment of transthyretin amyloidosis; Proteros Biostructures GmbH to jointly discover novel small molecules for the treatment of hematological cancers; Sierra Oncology, Inc. to develop and commercialize AZD5153. The company was formerly known as Zeneca Group PLC and changed its name to AstraZeneca PLC in April 1999. AstraZeneca PLC was incorporated in 1992 and is headquartered in Cambridge, the United Kingdom.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

38.70

28.50

PEG

2.20

P/B

6.60

5.30

P/S

5.20

4.80

P/FCF

41.80

49.80

EV/EBITDA

20.50

20.00

Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.

Performance: Favourable

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 17ppts and its growth accelerated by 8ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is favourable. This generally signifies that a stock is fairly valued or marginally undervalued abd is becoming more 'expensive', suggesting a short-term spike in confidence by the market at large.

Analyst view: Neutral

The average target price is 82 and suggests 3% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 91.7. This translates into 16% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 70.0. This is equivalent to 11% downside potential in the worst case.

Profitability: Good

RoE

AstraZeneca PLC reported a return on equity (RoE) of 16.5% in the last 12 months, up from 8.6% in FY22. The market consensus projects an RoE of 17.4% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 6.2% in the last 12 months, an increase from 3.3% in FY22. The market analysts predict that RoA will be 7.4% in FY24, again weaker than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 8.8%, below the peers. The consensus estimate for FY24 for RoCE is 13.8%, again behind the peers.

Net margin

EBITDA margin

Historically, AZN has reported good net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 13.3%, a growth from 7.4% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 27.8% in the last 12 months, up from 18.1% in FY22.

RoIC / WACC = 1.5(good value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.5 in the past several years. This ratio implies a good shareholder value creation.

Growth: Strong

Revenue

EBITDA

EPS

Free cash flow

AZN reported revenue of USD 45 811mn in the last 12 months, up 3% from FY22. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 51% from FY22 to USD 1.62. Market expects EPS to reach USD 4.56 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown very rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is a clear trend. In the past 12 months, the dividend yield has been moderate and on par with its peers. On average, the company pays dividends twice a year.

Default risk: Moderate

The risk of default is moderate. We note robust profitability, among the positive credit factors. Among the negative credit factors and we point to excessive margin volatility, and poor working capital management.

Volatility: Negligible

In normal market circumstances, AZN is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, AZN is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Low

AZN boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and is average on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.